The Scope of Economic Development - Case Study Example

In “The Global Competitiveness Report 2015-2016,” the concepts of economic growth and economic development gain the specific attention. On the one hand, economic growth is the term from macroeconomics that reflects the ability of the national economy to create higher real GDP. On another hand, economic development as the indicator based on GDP per capita reflects the situation with actual living standards. This is the broader concept that consists of several pillars and refers to both micro and macro environment. In the recent years, the report states of the higher unemployment, lower productivity rise, and fourth industrial revolutions trends in economic development. In this case, the scope of economic development ranges from working conditions to the innovative potential of the overall country.

In fact, both concepts are closely linked and determine the real picture for the national economy. At the same time, the differences between internal economic situations and inadequacy between economic growth (as the GDP increase) and economic development (as the economic environment for living) determine the classification in the presented report. In short, it is evident that economic growth and economic development cannot exist without each other but can take different paces and form different dynamics. Among the five phases of economic development, the report mentions factor driven, efficiency driven, innovation driven economies and two transition stages in between of them. In this text, economic development refers to the national competitiveness. Because of this, the authors distinguish the type of economy for each country and determine the potential of national economic growth in a global perspective. The higher the index of national competitiveness, the higher is economic growth.

• Main body

In the case of Vietnam, it is evident that this nation is on the second stage of economic development, meaning the transition state between factor driven and efficiency driven economies. At the same time, the process nature of economic development predicts that the country moves in the direction of the efficiency driven economy shortly. In this context, the report states that every country has the room for improvement to increase productivity (Schwab 2015, p. 15). Moreover, the economies in transition are amidst their movement from one stage to another (Schwab 2015, p. 38-39). In particular, the transitional essence of the second stage calls for action regarding better higher education, market efficiency and development, and technological enhancement.

In the report, Schwab (2015) investigated most economies in the world by using 114 indicators that refer to institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, market efficiency, innovation and others aspects of national competitiveness (p. 4-5). Among 140 countries, Vietnam got the 56th rank with the total 4.30 score in its Global Competitiveness Index (with minimum 1 and maximum 7 scores) (Schwab, 2015). In general, the author acknowledges the improvement within Vietnamese economy in the broader context of ASEAN improvements and finds it as the typical representatives of the Emerging and Developing Asia region (Schwab 2015, p. 21).

In order to address this classification, the author describes in-depth three key subindexes: Basic Requirements, Efficiency Enhancers, and Innovation and Sophistication Factors. Because countries are in the different stages of economic development, these indexes have the different weight in the overall Global Competitiveness Index. In the case of Vietnam, the Basic Requirements subindex has the heaviest weight with the slight influence of Efficiency Enhancers in the overall result (Schwab 2015, p. 366).

Specifically, the criteria of Basic Requirements puts Vietnam in the 72nd position with 4.54 score (Schwab 2015, p. 8). In detail, the Basic Requirements subindex consists of four pillars: institutions, infrastructure, macroeconomic environment, and health and primary education. In detail, institutions pillar means the legal and administrative framework of public interactions, infrastructure enables efficient functioning of the economy, the stable macroeconomic environment is essential for competitiveness, and health and primary education is the basis for the healthy workforce (Schwab 2015, p. 35). In this context, the key strengths of Vietnamese economic development are public trust in politicians, available airplane seats, nationwide access to the mobile network, great gross national savings, and high primary education enrolment (Schwab 2015, p. 367). The lowest rank appears in the case of corporate boards’ efficiency, the strength of auditing and reporting standards, and government budget balance (Schwab 2015, p. 367). In other words, the Vietnam economy demonstrates progressive outlook on essential technologies and the favorable political environment. At the same time, the ineffectiveness of basic governmental regulation worsens the situation.

Secondly, Vietnam reaches the 70th rank in terms of Efficiency Enhancers with 4.04 points (Schwab 2015, p. 8). In this context, the criteria of higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, and market size are the key factors for economy-driven economies. In this context, higher education and training move the economy beyond simple production, while goods and labor market efficiencies deal with effective distribution of national resources (along with efficient financial sector to allocate these resources appropriately). Also, technological readiness means the capacity to leverage information and communication technologies entirely, and market size shows the export potential (Schwab 2015, p. 36). In the Vietnam case, the national economy relies on imports, has the high ratio of female workers, high legal rights index, and effective market size (Schwab 2015, p. 367). However, it is hard to start the business, find the big bank and professional managers, and use technologies on a firm level in Vietnam (Schwab 2015, p. 367).

Finally, innovation and sophistication factors in Vietnam are 88th in the world with 3.44 score (Schwab 2015, p. 8). In this case, the quality of national business networks in general and individual firms’ behaviour in particular along with generating new value are critical for achieving the top stage of economic development within the innovation driven economy (Schwab 2015, p. 36-37). In Vietnam, only the governmental readiness to use advanced technical products reaches the top-30 in the world (Schwab 2015, p. 367). As for the key indicators of innovation backwardness, value chain breadth, nature of competitive advantage, quality of local supplies and scientific research institutions are the weakest sides of Vietnamese economy (Schwab 2015, p. 367).

Together, all these factors constitute the typical appearance of the emerging country in Asia (Appendix 1). As the general tendency, the economic situation in the emerging markets reveals quick growth in contrast to the advanced economies (Schwab 2015, p. 3), which increases the likelihood of the possible changes. At the same time, the current position of Asian countries is mostly mediocre in the global context. Because of this, it is crucial for the country to move from the usual position for its region and develop the new type of economy based on the different examples. Among the most successful examples, Singapore, Japan, and Hong Kong are the Asian economies in the top-7 of the world in the methodology of Global Competitiveness Index. In the case of China, non-reliance on investment-driven model results in moderate growth trend (Schwab 2015, p. 3) and its model of economic growth cannot create the sufficient balance with economic development in the long-term perspective. Because of this, it is essential for the Vietnamese economy to choose a more progressive model in making necessary reformations. As the closest examples, “miracle economies” of Hong Kong, the Republic of Korea, Singapore and Taiwan demonstrate the success of the trade and investment combination for economic growth (Schwab 2015, p. 15).

If to consider the necessary steps for Vietnam towards the next stage of economic development, it is important for the country to deal with its most problematic spheres. In this context, Schwab (2015) pays particular attention to the hard access to financing and political instability (p. 366). In this case, the lack of technological uptake and insufficient investment are the problem areas for the whole Emerging and Developing Asia region (Schwab 2015, p. 20). Thus, it is essential to create stable political and transparent environment open for investments. Furthermore, inadequately educated workforce and poor work ethic are also critical problems for Vietnam economy (Schwab 2015, p. 366). On this aspect, there is a global trend of the inadequate education system and inefficient labour market. In fact, this weakness reduces the ability of the economy to become the innovation-driven one (Schwab 2015, p. 17). In the case of Vietnam, employment of talented people contributes to the moving to the next stage of economic development in the direction of innovation-driven ideal. With the emphasis on the talent-driven model, economy easier adapts to changing global environment and relies on the progressive consumption models (Schwab 2015, p. 32). Moreover, it is important for the economy to consider problem areas of corruption, inadequate supply of infrastructure, the complexity of tax regulations, inefficient government bureaucracy, and inflation (Schwab 2015, p. 366). In this case, the global crisis recovery complicates the situation all over the world. In particular, Schwab (2015) mentions governmental bureaucracy, corruption, access to finance, and tax rates as the key factors that challenges doing business (p. 20). Because of this, it is crucial to start managing the economic problems on the governmental level and acknowledge the impact of weak regulation on the global competitiveness of the economy.

• Conclusions

In sum, the ‘inclusive growth’ as the type of economic growth that concentrates on the internal efforts to make progress in living standards emphasises on the equal attention to both economic growth and economic development indicators. In detail, the national economy with inclusive growth chooses to sustain this output growth a long-term perspective in order to create effective employment market and reduce social vulnerability (Samans et al. 2015, p. 1).

Among the key pillars to investigate the inclusive growth, Schwab (2015) mentions education and skills development, employment and labor compensation, asset building and entrepreneurship, financial intermediation and real economy investment, corruption and rents, basic services and infrastructure, and fiscal transfers (p. 4). In this context, the analysis whether the national economy fits the model of inclusive growth concentrates on the investigation of fundamental improvements in the living standards before measuring its effectiveness in dealing with fiscal problems (Schwab 2015, p. 5). In the analysed case of Vietnam, the concept of ‘inclusive growth’ fits the economic development of this country in the recent decade. In this context, the national economy demonstrates the most prominent employment and labour compensation along with the low level of unemployment (Samans et al. 2015, p. 46). Moreover, the current appearance of the economic growth in terms of the Global Competitiveness Index shows that Vietnam has strong positions in the world regarding primary education enrolment, basic services of air transport and mobile network, high life expectancy, and efficient pay and productivity indicator (Schwab 2015, p. 367). Based on the data available, Vietnam demonstrates strong attention to the improvement of living standards in the recent years. However, it is crucial to collect more information concerning the corruption level and entrepreneurship for further research.

At the same time, there is a problem that sustained growth model does not follow the GDP growth, and Vietnam is one of the most prominent examples in this case (Samans et al. 2015, p. 2). In this context, Inclusive Growth report mentions the necessity to upgrade education system, healthcare quality, facilitate interactions with the financial sector, and empower the positions of middle class (Samans et al. 2015, p. 45-46). Besides, the Global Competitiveness Report showed that Vietnam lacks efficient and progressive political regulation and technological enhancement. In other words, the inclusive growth model fits the appearance of Vietnam in the recent decades. However, the effectiveness of this model does not contribute to the national competitiveness of this economy in contrast to advanced countries on the stage innovation-driven economic development.